Value-added tax (VAT) plays a key role in managing business finances in Italy. If you run a business in Italy or plan to expand there, knowing who qualifies as a VAT taxable person and their tax obligations is important for effective and compliant business operations. This article explains what a VAT taxable person is, who qualifies in this category, their invoicing requirements, and the available VAT deduction options.

What’s in this article?

• VAT taxable persons explained
  
• Invoicing for VAT taxable persons
  
• The three conditions for the application of VAT
  
• VAT jurisdictions for taxable persons
  
• When does VAT not apply?
  
• VAT deduction for taxable persons
  

VAT taxable persons explained

VAT taxable persons according to European law

Under Article 9 of Directive 2006/112/EC, a VAT taxable person is anyone who independently engages in an economic activity, regardless of location, purpose, or outcome. Economic activities are as follows:

• Any activity of producers, traders, or persons supplying services, including mining, agriculture, or professional services

• The use of a tangible or intangible property for the purposes of obtaining income on a continuing basis

A taxable person can also be any person who occasionally supplies new means of transportation that is dispatched to the customer by the seller or customer or on their behalf outside of a member state but within the EU.

VAT taxable persons under Italian law

Under Italian law, VAT taxable persons are those who provide goods or services subject to VAT as part of a business, artistic, or professional activity, as defined by Articles 4 and 5 of Presidential Decree 633/72. Those engaged in these activities who conduct imports or intracommunity transactions are also VAT taxable persons.

VAT taxable persons (also known as “de jure taxpayers”) must apply VAT on invoices as an additional charge on the price of goods or services sold. However, customers (or “de facto taxpayers”) ultimately bear the cost of the tax, even though they have no direct obligations to the Treasury.

VAT taxable persons—since they must apply VAT to their sales—are responsible for paying the VAT collected on taxable transactions to the tax authorities. This includes intracommunity transactions. VAT taxable persons also must comply with documentation and registration requirements for transactions subject to VAT, even if they are not obligated to pay the tax (Article 17/1 of Presidential Decree 633/1972 and Article 44/1, I, Decree-Law No. 331/1993).

Who are not VAT taxable persons?

Individuals or taxable persons who carry out activities for personal use or for their employees are not considered VAT taxable persons by the tax authority. While private customers are de facto taxpayers since they cannot recover the tax paid, they are not considered VAT taxable persons because they have no tax obligations or dealings with the tax authorities.

Invoicing for VAT taxable persons

Taxable persons or individuals providing taxable goods or services must issue an invoice. Since January 1, 2019, businesses in Italy that issue invoices must issue them electronically and submit them through the Italian Revenue Agency’s Exchange System.

You must issue invoices for both B2B transactions (i.e., where both parties are VAT-registered) and B2C transactions (i.e., where the supplier is a VAT taxable person and the buyer is an individual).

To correctly issue an electronic invoice, you must use suitable electronic invoicing software, and the invoice must include the following details:

• Date of invoice issue
  
• Unique, sequential invoice number
  
• Issuer data, including company, business, or trading name; first and last name; and residence or domicile
  
• VAT number
  
• Customer data, including company, business, or trading name; first and last name; and residence or domicile
  
• Buyer’s VAT identification number or—for a taxable person established in another EU member country—the VAT number assigned by their country of establishment
  
• Tax identification number for private individuals without a VAT number
  
• Description, quantity, and prices of the goods or services involved in the transaction
  
• Date the issuer delivered the goods or services
  
• Date the customer paid, if different from the date of invoice issue
  
• VAT rate and taxable amount
  
• Recipient code for invoices issued to a business or freelancer, the unique code for invoices to the Public Administration, or “0000000” in the recipient code field for invoices to private individuals
  

The three conditions for the application of VAT

VAT is applied as outlined in Article 1 of Presidential Decree 633/1972, which states that “VAT applies to the supply of goods and services within the Italian state as part of a business, artistic, or professional activity, as well as to imports by any party.”

For VAT to be applied, the transaction must meet three basic conditions:

• Objective precondition
  The transaction must qualify as a supply of goods or a provision of services, as defined in Articles 2 and 3 of the Presidential Decree.

• Subjective precondition
  The transactions must be from individuals who regularly carry out business or self-employment activities.

• Territorial precondition
  The transactions must take place within the Italian state.

VAT jurisdictions for taxable persons

The territoriality principle determines where VAT applies on transactions carried out or received by taxable persons within Italian territory.

What does the “territoriality principle” mean?

For a transaction to be subject to VAT, the supply of goods or provision of services must take place within Italian territory.

The tax authority considers the supply of goods taking place within Italian territory if it involves real estate or movable property that is national, from the EU, or under a temporary importation regime within the country.

Additionally, the tax authority considers general services provided in Italy if they are supplied to taxable persons established in the country (i.e., B2B). Other services are considered to take place in Italy if taxable persons established in the country provide them to nontaxable customers (i.e., B2C).

When does VAT not apply?

In Italy, VAT is not applied in three main types of transactions: nontaxable, exempt, and excluded.

Nontaxable transactions

Nontaxable transactions refer to the sale of goods and the provision of services in dealings with foreign countries. In these cases, invoicing, registration, and VAT declaration obligations still apply, but the authority does not charge tax to the customer. The main transactions belonging to this category are:

• Exports
  
• Transactions treated as exports
  
• International services or services related to international trade
  
• Transfers to non-EU travelers
  
• Transactions with San Marino and Vatican City
  
• Transactions conducted under international treaties and agreements
  
• Intracommunity supplies
  

Exempt transactions

Exempt transactions are those involving specific goods and services that regulations explicitly classify as not subject to VAT. These include services such as healthcare, educational and cultural activities, and certain real estate transactions. You can find the full list in Article 10 of Presidential Decree 633/1972. Invoicing, registration, and declaration requirements still apply to these transactions, but you don’t charge VAT to the customer.

Excluded transactions

Excluded transactions are those that don’t meet at least one of the fundamental conditions—objective, subjective, or territorial—for VAT application. Examples include default interest and charges for packaging. Since these transactions fall outside the scope of VAT, they do not require invoicing or registration and do not permit VAT deduction on related purchases.
Keeping up with changing tax regulations can be challenging for your business. To help with this, automated tools such as Stripe Tax track transactions and notify you when and where tax registration is required. It also automatically calculates the correct tax amounts and assists in filing returns through accredited partners or provides detailed reports to help you file returns independently.

VAT deduction for taxable persons

VAT deduction is a process that enables VAT taxable persons to subtract the VAT paid on business-related purchases from the amount they owe in VAT. In practice, this allows a business to reduce the VAT it owes to the state by deducting the VAT already paid on goods or services acquired for its operations.

For a VAT taxable person to deduct VAT, they must satisfy the following conditions:

• The supplier must properly apply VAT recovery, meaning they pass the tax on to the customer through the invoice, allowing the supplier to recover the VAT paid.
  
• The transaction must be relevant to the business, meaning there must be a direct and immediate connection between the purchases and the business activity.
  
• None of the conditions for VAT nondeductibility must apply, as outlined in Articles 19-bis1 and 19-ter of Presidential Decree 633/72.
  
• You can only deduct VAT if taxable or nontaxable transactions are conducted; you cannot deduct it for exempt or excluded transactions.